Economics of Superstars under Hard Salary Cap: a Study of the National Hockey League

The superstars who can boost the performance of their team, at the same time, can increase the inequality that may mitigate the positive effect of superstars and even make hiring them unfavorable. In my thesis, I model this trade-off by focusing on the National Hockey League (NHL) teams that operate under a hard salary cap. Then I estimate the parameters of the model using the data on the salaries of the NHL players, and the model suggests that teams should hire superstars under these conditions. Further, I study the potential heterogeneity of the effects and find out that top players are less vulnerable to adverse inequality effects and benefit from the presence of superstars more than other players. Moreover, I get that superstars may slightly decrease the performance of their peers who compete with them for time on ice, but the effect on the players with other roles is strictly positive. Based on these results, the NHL teams should hire the superstars but not create competition among them.